The present invention relates to detecting fraudulent or erroneous invoices, and in particular, to a system and method of detecting fraudulent or erroneous invoices as submitted to an automated invoice processing system such as an Enterprise Resource Planning (ERP) system.
In some corporations, the use of enterprise management systems has dramatically streamlined the processing of payable invoices by automating many steps that used to be performed manually. In many situations where an actual person used to be involved, seemingly small, but hugely consequential, judgments and decisions were made on a daily basis regarding the validity of invoices. For accounts payable personnel, the ability to spot potentially fraudulent or erroneous invoices is based on experience. Generally, an experienced professional can make such a determination manually if the necessary information is available. However, as more and more of the accounts payable process is automated with ever evolving ERP systems, there are fewer and fewer steps along the way in which a person might identify a possibly fraudulent or erroneous invoice. This situation has inspired opportunistic frauds to exploit loopholes, cracks, and weaknesses in current automated or semi-automated invoice processing systems. Recently, large corporations have been subject to large financial losses stemming from either fraudulent or erroneous invoices.
By submitting fraudulent invoices criminals hope to take advantage of the fact that many payment protocols are fully or partially automated and that those automation systems will not detect minor modifications or discrepancies, and thus send or reroute payments for goods or services that were neither ordered nor received. Erroneous invoices on the other hand may result from unintentional errors on the part of a vendor's employees. Such scenarios are best illustrated by example.
In one scenario, a criminal might try to submit an invoice that looks identical to a actual vendor's valid invoice but with payment address or bank information altered so that if funds are sent out, they will go to the criminals address or bank account. Many current ERP systems may not check the validity or correctness of where payment should be sent.
In another scenario, an invoice may be accidentally sent by a vendor twice, leading to a duplicate. If the amount due and purchase order number are valid, and the vendor is a known good vendor, some existing invoice processing systems may erroneously pay the invoice twice according to the terms of the invoice. In a manual payment system, an accounts payable clerk might notice that a second duplicate invoice has already been paid and take corrective action. But in automated systems, such errors may go undetected.
Many current fraud detection systems approach the problem of fraudulent or erroneous invoices by attempting to screen incoming invoices for known variations on how an invoice can contain fraudulent information or errors. In other words, current approaches attempt to screen fraudulent or erroneous invoices by defining rules that screen out bad invoices. One problem with such an approach is that it is nearly impossible to predict, program, and screen all possible variations of fraudulent or erroneous invoices. Therefore, existing fraud and error detection systems typically execute extremely complex and lengthy algorithms that search for indicia of known frauds or errors only. Such systems are not adept at detecting new fraudulent activities or errors.
Thus, there is a need for a system and method of detecting fraudulent and erroneous invoices in a way that will improve the efficiency, speed, and accuracy of payment for valid invoices and decrease the number of fraudulent and erroneous invoices that are paid using current systems and methods. The present invention solves these and other problems by providing fraud and error detection systems and methods that use adaptive system techniques for continually improving detection performance.